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Morgan Stanley -Japan Financials Strategy A New Phase

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					 June 27, 2013



                                                                                                                                                                                   MORGAN STANLEY MUFG RESEARCH
  Japan Financials Strategy: A New Phase                                                                                                                                           Japan

                                                                                                                                                                                   Morgan Stanley MUFG Securities Co., Ltd.+


      Contents                                                                                                                                                                     Japan Financial Team

                                                                                                                                                                                   Hideyasu Ban

      1.          Financials stock investment overview &                                                                                                                           (Sector Strategy, Insurance, Other Financials)
                                                                                                                                                                                   +81 (0)3 5424 5381
                  individual stock ratings                                                                                                                                         Takaaki Nishino (Banks)
                                                                                                                                                                                   Koki Tanaka (Insurance, Other Financials)
      2.          Financials stock recommendations by group                                                                                                                        Keita Suzuki (Banks, Other Financials)


                  & within groups: Based on changing
                  valuation levels
      3.          Additional materials (valuations & share price
                  performance)

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“MUMSS”) is currently acting as financial advisor to Tokio Marine & Nichido
Fire Insurance Co., Ltd. in relation to its announced discussions regarding a comprehensive strategic alliance with National Mutual
Insurance Federation of Agricultural Cooperatives.
Tokio Marine & Nichido Fire Insurance Co., Ltd. has agreed to pay advisory fees to MUMSS for its financial advisory services.

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (hereafter “MUMSS”) is currently acting as a financial advisor to Deposit
Insurance Corporation of Japan in relation to its announced Public Funds Full Repayment Plan by Resona Holdings, Inc.
Deposit Insurance Corporation of Japan has agreed to pay fees to MUMSS for its financial advisory services.


  Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
  objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.

  For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

  += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and
  trading securities held by a research analyst account.
                                                                                                                                MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                           June 27, 2013


 Conclusions & investment view: Different investment theses for different groups, favor stocks on
 assumptions of (1) range-bound trading, or (2) trading beyond the existing range based on
 earnings momentum and changing stances on investor rewards
                                                                                                            Investment stance on financials stocks for 2013 2H:
                              Valuation                                                                     We separate financials stocks into 3 groups: (1) where
                                   Expensive                         Fair                           Cheap   rapid ROE recovery has put P/B >1x (equity market-
                                                       Upper Range          Lower Range
                                                                                                            sensitive stocks, nonbanks in the consumer finance field),
                                                                                                            (2) where P/B ranges have picked up due to a positive turn
                                 Mid Sized Cons Credit Related Non Bks      Credit Saison
                                                                                                            in business conditions (from 0.6-0.8x to 0.8-1.0x; banks in
      Strcutural Recovery /                                                                                 general, leasing firms (Orix), etc), and (3) those which have
             Growth
                                                                                                            not broken out of the existing range traded in from the onset
                                                                                                            of the Lehman shock to the eve of Abenobics (insurers).
                                                     Tokio Marine        MS&AD              NKSJ            Investment thesis per group:
                                                                         Aeon Financial
                                                                                                            (1) Selective investment based on stock-specific themes,
                                                                                                            relative edge in earnings improvement, etc
      Sutainable EPS/DPS
                                                                                                            (2) Currently at range-bottom, look for subindustry rebound
            Growth                                   SMTH                Mega Banks         Dai-ichi Life   rather than taking a selective approach (ROE levels have
                                                     Leasing             Orix
                                                                         Nomura
                                                                                            T&D             been flat but are improving moderately)
                                                                         Sony FH                            (3) Here our thesis hinges on valuations moving up to a
                                                     JPX                 Daiwa Sec
                                                                                                            new range on improvement in adjusted profit and positive
                                                                                                            changes in investor reward policies.
                                                                                                            Our recommended stocks:
                                                                                                            Stocks in each subindustry where EPS growth rates are
                                                                                                            high or normalized profit is higher than current profit,
                                                                                                            and valuations are relatively low in relation to this.
                                                                                                            (1) High-beta group:
                                                                                                            NKSJ (8630), Dai-ichi Life (8750), Nomura HD (8604),
                                                                                                            SMTH (8309)
                                                                                                            (2) Low-beta group (beta lower than high-beta group, not
                                                                                                            necessarily low in absolute terms)
                                                                                                            Orix (8591), megabanks (SMFG (8316), Mizuho FG (8411)),
Morgan Stanley Bank AG is acting as financial adviser to WestLB AG, which has been
succeeded by Portigon AG, in relation to the proposed sale of Banco WestLB do Brasil S.A. to                Aeon Financial (8570)
Mizuho Corporate Bank, Ltd. Please refer to the notes at the end of the report.



Source: Morgan Stanley Research                                                                                                                                            2
                                                                                                                                        MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                        June 27, 2013

Financials stock groupings: Group 1 has P/B >1x and consists of brokers and
consumer-finance nonbanks. Group 2 is where falling real interest rates and stock
market recovery have lifted the trading range above former levels; this includes banks
Group 1
 2.2                                                                                                1.4
                           Median PBR (Brokers)                                                                          Median PBR (Credit Card)
                                                                                                    1.3
      2

                                                                                                    1.2
 1.8
                                                                                                    1.1
 1.6
                                                                                                     1                                                             (QE3)
 1.4
                                                                                                    0.9
 1.2                                                                                                          (QE2)                             (LTRO)
                                                                                                    0.8
      1
                                                                                                    0.7

 0.8        (QE2)                                                                                   0.6
                                                                                     (QE3)
 0.6                                                   (LTRO)                                       0.5

 0.4                                                                                                0.4
  Oct-10   Jan-11 Apr-11    Jul-11   Oct-11   Jan-12    Apr-12   Jul-12   Oct-12    Jan-13 Apr-13    Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
Group 2
1.2                                                                                                  1
                             Median PBR (Banks)                                                                          Median PBR (Regional Banks)
1.1
                                                                                                    0.9
 1

                                                                                                    0.8
0.9          (QE2)                                                                                            (QE2)                                                 (QE3)
                                                                                   (QE3)                                                        (LTRO)
                                                       (LTRO)
0.8                                                                                                 0.7

0.7
                                                                                                    0.6
0.6

                                                                                                    0.5
0.5

0.4                                                                                                 0.4
 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13                        Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13       3
Source: Thomson Reuters, Morgan Stanley Research
                                                                                                                                                    MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                               June 27, 2013


  Financials stock groupings, cont’d: Group 2 also includes Orix & lease company stocks. Group 3
  brings together stocks that have not lifted up from their existing trading range despite changing
  conditions and a better earnings outlook, ie, insurers
Group 2, cont’d
    1.4                                Orix                                                         1.2
                                                                                                                                 Median PBR (Lease)
    1.3
                                                                                                    1.1
    1.2
                                                                                                     1
    1.1

     1          (QE2)                                                                               0.9
                                                                                    (QE3)                                                                                                 (QE3)
    0.9                                                  (LTRO)                                     0.8
                                                                                                                                                              (LTRO)
    0.8
                                                                                                    0.7
    0.7
                                                                                                                 (QE2)
                                                                                                    0.6
    0.6

    0.5                                                                                             0.5

    0.4
                                                                                                    0.4
     Oct-10   Jan-11 Apr-11   Jul-11   Oct-11   Jan-12   Apr-12   Jul-12   Oct-12   Jan-13 Apr-13
   Group 3                                                                                           Oct-10    Jan-11 Apr-11    Jul-11    Oct-11    Jan-12   Apr-12    Jul-12    Oct-12   Jan-13 Apr-13

   0.65                                                                                              0.8
                              Average P/EV (P&C Ins)                                                                               Average P/EV (Life)
                                                                                                    0.75
    0.6
                                                                                                     0.7

                                                                                                    0.65
   0.55
                                                                                                     0.6

    0.5                                                                                             0.55

                                                                                                     0.5
   0.45          (QE2)                                                                                             (QE2)
                                                                                                    0.45
                                                         (LTRO)                             (QE3)
                                                                                                     0.4                                                     (LTRO)                          (QE3)
    0.4
                                                                                                    0.35

   0.35                                                                                              0.3
      Oct-10 Jan-11 Apr-11    Jul-11   Oct-11   Jan-12 Apr-12     Jul-12   Oct-12 Jan-13 Apr-13       Oct-10    Jan-11 Apr-11    Jul-11    Oct-11    Jan-12 Apr-12      Jul-12    Oct-12 Jan-13 Apr-13
   Source: Thomson Reuters, Morgan Stanley Research                                                                                                                                                            4
                                                                                                                              MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                       June 27, 2013


Factors to consider in outlook for financials stocks: (1) Real interest rates & financials stocks:
Phase of outperformance vs. market under falling real interest rates in Japan came to a halt as of
Apr, financials stocks now need a new theme on which to outperform
                                                                                                                               Scenario 1:
 Real Int rate (5 yr Yld - BE Inflation Rate)                                                                                  Neither Japan nor the US are at
                                                                                                                               present showing strong enough
                         0.50%                                       120                                                       economic recovery to allow
                                                                                                                               sustained growth in real interest




                                                                           Sector perform ance rel to TO PIX (11/12/12=100)
                                                                                                                               rates. Japan, in particular, is
                                                                                                                               unlikely to see much growth in
                         0.00%                                       115
                                                                                                                               real rates (limits to growth in
                                                                                                                               nominal rates too unless
                                                                                                                               expectations of inflation rise
                         -0.50%                                      110
  R eal Interest R ate




                                                                                                                               markedly): Assume range-bound
                                                                                                                               trading for megabanks and
                                                                                                                               insurers breaking out of their
                         -1.00%                                      105                                                       range up to now, and include both
                                                                                                                               to raise overall financials portfolio
                                                                                                                               beta. Focus on stock-specific
                         -1.50%                                      100                                                       themes for brokers and other
                                                                                                                               nonbank financials.
                                                                                                                               Scenario 2 (alternative):
                         -2.00%                                      95                                                        Correction in overly-low US real
                                                                                                                               interest rates creates an upward
                                  JPN   US   Banks rel to TOPIX                                                                bias for domestic real rates:
                         -2.50%                                      90                                                        Financials stocks unlikely to show
                                                                                                                               sustained outperformance vs. the
                              1/ 12
                              2 / /1 2
                              3 / /1 2
                              4 / /1 2
                              5 / /1 2
                              6 / /1 2
                              7 / /1 2
                              8 / /1 2
                              9 / /1 2
                              1 0 /1 2
                              1 1 /1 2
                              1 2 /1 2
                            1 2 /1 2


                              2 / /1 3
                              3 / /1 3
                              4 / /1 3
                              5 / /1 3
                              6 / /1 3
                                       3
                              1 / /1 2




                                                                                                                               market (as the possibility of credit
                                    /1
                                  2/
                                 30
                                 27
                                 26
                                 23
                                 21
                                 18
                                 16
                                 13
                                 10
                                 /8
                                 /5
                                 /3


                                 28
                                 25
                                 25
                                 22
                                 20
                                 17
                                  1
                           1/




                                                                                                                               expansion – the next catalyst for
                               /3




                                                                                                                               bank stocks et al – decreases). If
                                                                                                                               so, raise relative weightings of life
                                                                                                                               insurers as these directly reflect
                                                                                                                               growth in nominal interest rates.

Source: Thomson Reuters, Morgan Stanley Research                                                                                                                       5
                                                                                                                                                                                                                                                                                                                                                                                                                             MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     June 27, 2013


                     Factors to consider in outlook for financials stocks: (2) Structural analysis of real interest rates:
                     Japan’s real interest rates have dropped below those of the US, driven by mounting expectations of
                     inflation; nominal rates have stayed about flat
                                                                                                                                                                                                                                                                                                     BE Inflation R
                                                                                                                                                                                                                                                                                                     2.50%

                                                                                                                                                  Analysis of real int. rates (Japan)                                                                                                                2.00%

                                                                                                                                                                                                                                                                                                     1.50%

                                                                                                                                                                                                                                                                                                     1.00%


     Real int. rates in Japan vs. US & ¥/US$ levels                                                                                                                                                                                                                                                  0.50%

Real Int rate (5 yr Yld - BE Inflation Rate)                                                                                                                                                                                                                                                         0.00%

                     0.50%                                                                                                                                                                                                                                                                     110   -0.50%

                                                                                                                                                                                                                                                                                               105   -1.00%
                     0.00%
                                                                                                                                                                                                                                                                                               100
                                                                                                                                                                                                                                                                                                     -1.50%
                                                                                                                                                                                                                                                                                               95
                     -0.50%
Real Interest Rate




                                                                                                                                                                                                                                                                                                     -2.00%
                                                                                                                                                                                                                                                                                               90




                                                                                                                                                                                                                                                                                                                                                                          May-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                               Nov-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   May-13
                                                                                                                                                                                                                                                                                                                                              Mar-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       Mar-13
                                                                                                                                                                                                                                                                                                              Jan-12

                                                                                                                                                                                                                                                                                                                                Feb-12




                                                                                                                                                                                                                                                                                                                                                            Apr-12




                                                                                                                                                                                                                                                                                                                                                                                        Jun-12

                                                                                                                                                                                                                                                                                                                                                                                                      Jul-12

                                                                                                                                                                                                                                                                                                                                                                                                                    Aug-12

                                                                                                                                                                                                                                                                                                                                                                                                                                   Sep-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                 Oct-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                             Dec-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Jan-13

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Feb-13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Apr-13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Jun-13
                     -1.00%                                                                                                                                                                                                                                                                    85

                                                                                                                                                                                                                                                                                               80                                                                                           10 Yr JGB                             Inflation Bond                             BE Inflation R
                                                                                                                                                                                                                                                                                                      BE Inflation R
                     -1.50%
                                                                                                                                                                                                                                                                                               75      3.00%

                                                                                                                                                                                                                                                                                               70      2.50%
                     -2.00%
                                                                     JPN                         US                   Yen$                                                                                                                                                                     65
                                                                                                                                                                                                                                                                                                       2.00%
                     -2.50%                                                                                                                                                                                                                                                                    60
                              1/2/12
                                       1/23/12
                                                 2/13/12
                                                           3/5/12
                                                                    3/26/12
                                                                              4/16/12
                                                                                        5/7/12
                                                                                                 5/28/12
                                                                                                           6/18/12
                                                                                                                     7/9/12
                                                                                                                              7/30/12
                                                                                                                                        8/20/12
                                                                                                                                                  9/10/12
                                                                                                                                                            10/1/12
                                                                                                                                                                      10/22/12
                                                                                                                                                                                 11/12/12
                                                                                                                                                                                            12/3/12
                                                                                                                                                                                                      12/24/12
                                                                                                                                                                                                                 1/14/13
                                                                                                                                                                                                                           2/4/13
                                                                                                                                                                                                                                    2/25/13
                                                                                                                                                                                                                                              3/18/13
                                                                                                                                                                                                                                                        4/8/13
                                                                                                                                                                                                                                                                 4/29/13
                                                                                                                                                                                                                                                                           5/20/13
                                                                                                                                                                                                                                                                                     6/10/13




                                                                                                                                                                                                                                                                                                       1.50%

                                                                                                                                                                                                                                                                                                       1.00%

                                                                                                                                                                                                                                                                                                       0.50%

                                                                                                                                                                                                                                                                                                       0.00%

                                                                                                                                                                                                                                                                                                      -0.50%
                                                                                                                                                                                 Analysis of real int. rates (US)
                                                                                                                                                                                                                                                                                                      -1.00%
              Note: BE inflation rate calculated from yields on inflation-linked bonds and 10yr JGBs.
              Real interest rates deduct the BE inflation rate from the 5yr bond yield. In Japan, new                                                                                                                                                                                                 -1.50%
              issuance of inflation-linked bonds is set to resume in Oct 2013 but is suspended for
                                                                                                                                                                                                                                                                                                                                                                               May-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        May-13
                                                                                                                                                                                                                                                                                                                                                                                                                                                                    Nov-12
                                                                                                                                                                                                                                                                                                                                                   Mar-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            Mar-13
                                                                                                                                                                                                                                                                                                                       Jan-12




                                                                                                                                                                                                                                                                                                                                                                 Apr-12




                                                                                                                                                                                                                                                                                                                                                                                             Jun-12

                                                                                                                                                                                                                                                                                                                                                                                                           Jul-12

                                                                                                                                                                                                                                                                                                                                                                                                                         Aug-12

                                                                                                                                                                                                                                                                                                                                                                                                                                        Sep-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                      Oct-12




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Dec-12

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Jan-13

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Feb-13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Apr-13




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      Jun-13
                                                                                                                                                                                                                                                                                                                                     Feb-12




              now. Hence there is room for debate as to whether expectations are reflected
              accurately from angles such as liquidity, etc.
                       Source: Thomson Reuters, Morgan Stanley Research                                                                                                                                                                                                                                                                                                                          10 Yr UST                         Inflation Bond                              BE Inflation R                                                                                  6
                                                                                                                           MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                            June 27, 2013



 Subindustry rotation: Performance vs. TOPIX of main financials stocks since mid-Nov 2012: Life
 insurers have led financials since the start of the new phase in real interest rate movements (ie, May)
Relative
                                                                               After                                                                                    After
Performance    Nov    Dec    Jan   Feb    Mar    Apr   May     Jun   Cuml                             Nov    Dec    Jan    Feb    Mar   Apr   May     Jun     Cuml
                                                                            May-end                                                                                  May-end
TOPIX          8%    10%      9%    4%     6%   13%     -3%    -6%    42%      -8%     TOPIX           8%    10%     9%    4%     6%    13%    -3%   -6%       42%      -8%
MUFG           1%    12%      4%   -5%     3%    6%     -8%     3%    16%      -5%     Chiba          -1%    -8%     4%    0%     8%    -1%   -13%    2%       -9%     -11%
SMFG           4%     7%      8%   -3%    -4%    9%     -9%    12%    24%       2%     Yokohama       -4%    -8%     0%    5%     8%    -4%   -13%   -1%      -16%     -14%
Mizuho         0%     9%      7%    8%    -9%   -5%     -7%     5%     9%      -2%     Suruga         -2%   -11%     3%   10%     5%     1%    -8%   11%       10%       2%
SMTH           1%    10%      3%    3%    17%   -2%    -10%     1%    23%      -9%     Seven         -12%    -4%   -12%    7%    19%     1%     8%    0%        6%       8%
Resona        -2%     4%     -6%    1%     9%   -6%     -9%     5%    -4%      -3%
Shinsei        2%    12%      0%    5%    -2%   16%     -8%   -11%    14%     -19%     NKSJ          -1%     7%    -5%    -2%    -6%    13%   -3%     1%        5%       -2%
Aozora         5%    -6%    -12%    6%   -12%    3%     -1%     5%   -13%       4%     MS&AD          1%     9%     3%    -4%     2%    14%    1%    -2%       23%       -2%
                                                                                       Tokio M       -1%     3%     4%    -7%    -5%     4%   -1%     6%        3%        5%
Dai-ichi        0%    18%    0%    -5%    -9%    -7%    7%     2%      7%       9%
T&D             3%     7%   -1%    -6%    -3%   -13%   14%     4%      5%      18% Fuyo General       2%    11%     7%    -3%     1%    13%   -12%    -6%      12%     -19%
SFH            -5%    -1%   -9%    -9%   -10%   -15%   12%     5%    -32%      17% Century Tokyo     -8%     0%     5%     2%    10%     2%    -7%    -3%       2%     -10%
Lifenet       -21%   -25%    3%    -8%    -3%   -17%   19%    -9%    -60%      10% Hitachi Capital   -9%     4%    -7%    -2%     4%     7%    -4%   -14%     -21%     -18%
                                                                                   MUFJ L            -5%    -7%     3%    -1%    10%    -2%   -12%     0%     -14%     -12%
Orix           -4%    7%     -9%    2%    9%    13%     -5%   -9%     5%      -14% NEC Capital       -5%     3%    -3%    13%    40%    40%   -31%   -18%      39%     -49%
Cr Saison      -3%    7%    -19%   -2%   13%     9%    -13%    1%    -7%      -12%
Aeon Fin      -11%   -2%     -1%   10%   18%    -3%     -4%    0%     7%       -5% Zenkoku Hosho                    45%     9%    26%    5%   -17%    -4%      65%     -21%
                                                                                   J Trust             3%    -1%    -1%     1%    95%    7%   -39%    -7%      58%     -46%
Daiwa          9%    20%      2%    4%    8%     19%     2%    -4%   61%       -2% Aiful               5%    55%    -1%    -9%    -2%   65%    -7%   -15%      92%     -21%
Nomura        11%    37%     -5%   -3%    2%     25%     2%    -6%   65%       -4% Acom               -6%     0%   -13%    -8%    12%   35%    -6%   -15%      -2%     -21%
Okasan         3%    14%     23%   22%   17%     26%   -23%   -13%   67%      -37% Orico              -3%    85%    -4%   -13%   -10%    1%    -9%   -23%      24%     -31%
Tokai Tokyo   23%    15%     15%   11%   17%      3%    -9%   -11%   64%      -21% Aplus             -10%   115%    30%    -9%    -7%    8%   -12%   -18%      98%     -30%
Ichiyoshi     -3%    21%     15%    5%   15%     29%    -6%   -15%   62%      -22%
Monex         23%    15%     15%   11%   17%      3%    -9%   -11%   64%      -21%
Matsui        13%    10%     -1%    0%    7%     11%   -12%   -16%   11%      -29%
JPX           -4%    23%     19%   25%   15%     28%   -18%     3%   90%      -15%
JAFCO          4%    13%     16%   -4%   -2%     31%   -19%    -2%   37%      -22%
SBI HD        -6%    14%    -10%   -7%    7%    114%   -29%   -16%   68%      -45%




Note: Monthly performance relative to TOPIX
                                                                                                                                                                            7
Source: Thomson Reuters, Morgan Stanley Research
                                                                                                                 MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                 June 27, 2013


Global interest rate outlook: Our macro teams expect the outlook for long-term rates in Japan,
US & Europe to pick up a little toward year-end, we expect the rate gap between Japan & US to
widen a little in 2013 2H

Yield curve may steepen slightly near term, but formation not changing much in the mid/longer run (reduced risk of
long-term rates dropping further below current levels)


LT int. rate outlook for Japan, US & Europe (main scenario)                                  LT int. rate outlook for Japan & US (range)
Yield (%)                                                                        Yield (%)
4.50                                                                             4.00
            10-Year JGB   10-Year Gilt   10-Year Treasury   10-Year Bund Yield                        10Y JGB2        10Y UST2            10Y JGB-Bull
4.00                                                                                                  10Y JGB         10Y UST             10Y UST-Bear
                                                                                 3.50
3.50
                                                                                 3.00
3.00
                                                                                 2.50
2.50                                                                                                                               bear

2.00                                                                             2.00

1.50                                                                                                                                        bull
                                                                                 1.50
1.00
                                                                                 1.00                                            bear
0.50
                                                                                 0.50                                                     bull
0.00
     08
     09
     09
     09
     09
     10
     10
     10
     10
     11
     11
     11

  1Q 1
     12
     12
     12
     12
     13
     13
     13
    13




                                                                                 0.00
     1
  4Q
  1Q
  2Q
  3Q
  4Q
  1Q
  2Q
  3Q
  4Q
  1Q
  2Q
  3Q
  4Q


  2Q
  3Q
  4Q
  1Q
  2Q
  3Q
  4Q




                                                                                    1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13



We think mid/long-term steepening of the yield curve is unlikely, but consider inclusion of stocks that may show some
response to near-term steepening.




 Source: Thomson Reuters, Morgan Stanley Research                                                                                                                8
                                                                                                                                                        MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                          June 27, 2013




 Valuation summary in our bull/bear and base cases
                                              Banks                                                                                   Other Financials (Non Bank)
                                                                                                                                                                                          BULL
                                                                                                                   75%
100%
                                                                                                  BULL
                                                                                                                   50%             44%

 50%          45%                                                                                                                                                          24%
                                        38%
                            33%                                                                                    25%
                                                                    23%                                                                                14%                                BASE
                                                      10%                                         BASE
current
                                                                                     4%
price


                                                                                                   PT              -25%                                                                    PT
                                                                                                                current
                                                                                                                price
-50%
            MizuhoFG        SMFG        SMTH         Aozora        Shinsei        Resona          BEAR             -50%
            (8411 OW)     (8316 OW)   (8309 OW)    (8304 EW)     (8303 UW)      (8308 UW)                                          ORIX           Aeon Financial      Credit Saison       BEAR
                                                                                                                                (8591 OW)          (8570 EW)           (8253 EW)


                                          Insurance                                                                                      Brokers, Asset Management
            Life                                   Non Life
 100%                                                                                                    75%                                                                                    BULL
                                                                                            BULL
                                                                                                         50%              40%                                                    36%
   50%         41%                                                                                                                          28%
                            37%         34%         33%          32%                                     25%                                                  17%
                                                                               17%                       current                                                                                BASE
                                                                                                         price
                                                                                            BASE

  current
  price                                                                                      PT          -25%                                                                                    PT

  -50%
               Dai-ichi      T&D         SFH        NKSJ        MS&AD          Tokio        BEAR         -50%
                                                                                                                      Nomura HD          Daiwa Sec        Japan Exchange        SBI HD       BEAR
             (8750 OW)    (8795 EW)   (8729 EW)   (8630 OW)    (8725 EW)       Marine
                                                                                                                      (8604 OW)          (8601 EW)            Group           (8473 UW)
                                                                             (8766 EW)
                                                                                                                                                            (8697 EW)
  For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
  risks on a particular stock.
  Share prices as of Jun 26, 2013. Source: Morgan Stanley Research                                                                                                                                        9
                                                                                                                                   MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                      June 27, 2013




Stock ratings & price targets
                                    Banks                                                                                    Insurance

 (¥, X)                        Price         Rating         PT          PBR           (¥, X)                        Price         Rating         PT          PER         P/EV
 Mizuho             8411        193           OW            280          0.9          Dai-ichi           8750      134,700         OW          190,000       26.4         0.4
 SMFG               8316       4,290          OW           5,700         0.9          T&D                8795       1,238          EW           1,700        13.0         0.5
 SMTH               8309        406           OW            560          0.8          SFH                8729       1,493          EW           2,000        14.5         0.5
 Aozora             8304        292           EW            320          0.9          NKSJ               8630       2,211          OW           2,950        27.5         0.4
 Shinsei            8303        203           UW            250          0.9          MS&AD              8725       2,355          EW           3,100        12.8         0.5
 Resona             8308        460           UW            480          0.9          Tokio Marine       8766       2,991          EW           3,500        13.4         0.6




                   Other Financials (Non Bank)                                                                  Brokers, Asset Management

(¥, X)                         Price         Rating          PT           PBR         (¥, X)                         Price         Rating          PT          PBR         P/TB
Orix                8591       1,180          OW            1,700          0.9        Nomura HD          8604         698           OW             980          1.2         1.3
Aeon Financial      8570       2,555          EW            2,900          2.1        JPX                8697        9,250          EW           10,800         2.9         7.5
Credit Saison       8253       2,290          EW            2,850          1.1        Daiwa              8601         774           EW             990          1.7         1.8
                                                                                      SBI HD             8473        1,014          UW            1,380         0.7         1.1

  < Industry View >
  Banks: Attractive
  Insurance: Attractive
  Other Financials: In-Line
  (Credit Card, Brokers)



For valuation methodology and risks associated with any price targets above, please email morganstanley.research@morganstanley.com with a request for valuation methodology and
risks on a particular stock.
Valuation is calculated based on 3/2013 data adjusted by market changes. Source: Thomson Reuters, Morgan Stanley Research. Share prices as of Jun. 26, 2013.

                                                                                                                                                                                      10
                                                                                                                                                                                                           MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                                                                                                 June 27, 2013
     Financial stock investment roadmap: Visualization of sector rotation – near term, assume risk
     with interest rate sensitive stocks and liquid stocks sensitive to TOPIX (Dai-iichi Life, Nomura).
     Orient portfolios around long positions (next 1-2 months) in range-trading megabanks that have
     low downside risk after correction, then around stocks with high rates of earnings change.
                                                                     What has changed                                                                                                                                  Scenario envisioned, and sector rotation that would result
                                                             2012                                                                                        2013                                                                                                   2014
                          Nov                        Dec                     Jan                      Feb                   Mar                  Apr                    May                      Jun                       Jul-Sep               Oct-Dec              Jan-Mar
  Change in external environment
                                                                                                News of early
                                                                                            departure of BoJ Gov                                                                           Specific reform
                     Lower house election        Birth of LDP                                                    US employment data                                                                                 Reform progress after          Potential demand spurt ahead of
                                                                                               Shirakawa and                                                                           agenda and timetable
                            called               government                                                        improve further                                                                                  upper house election                consumption tax hike
                                                                                               identity of new                                                                         including CEFP report
                                                                                                  governor

                                                                                                                                                                                                                   Labor's share of income
                                                                                                                                                                                                                    rises (rising wages) =
                                                                                                                                                                                                                        expectation for
                                                                                                                                                                                                                   revitalized consumption

                                              Increase in stock       Sharp increase in   Positive net inflows
                     Rising stock market                                                                                                                                Increase in primary market volume
                                               trading volume       stock trading volume into investment trusts

                          Sharp yen                                 Loan growth by major Yield curve shifts up
                         depreciation                                 banks increases    and then back down

                                                                     Price outlook turns                                                                                                                            Consumption recovery and gradual rise in the
                                                                           positive                                                                                                                                               price outlook

  Rotation within financial stocks: events to date and the outlook
                                                                                                                                                                                                                                            Theme to shift from range trading to P/B >1
                                                                                                                                                                                       Long positions within range-bound trading created by
  Major banks                                                                                                                                                                                                                               stocks if expectations for further increase in
                                                                                                                                                                                                             correction
                                                                                                                                                                                                                                                        domestic lending rise
                                                                                                                                            Banks with strong earnings recovery                                         Low P/B stocks
  Mid-tier banks
                                                                                                                                            momentum on bank-specific themes                                       assuming rising interest
  Major brokers                                                                                                                                 Brokers with high operating leverage due to primary flows and reduced cost base

  Smaller brokers
                                                                                                                                                            Choose names with high operating leverage if market flows continue to increase
  Exchanges

  Life insurers                                                                                                                                          Long-term interest rates firm up with additional easing, progress in shareholder return

  Nonlife insurers                                                                                                                                     Confirmation of earnings recovery via results reporting and progress in shareholder return
  Major non-banks                                                                                                                                                                                                 Focus on defensives not badly hurt by rising
                                                                                                                                                                                                                  interest rates (consumer credit related non-
  Smaller non-banks                                                                                                                                                                                               banks)
  Share price drivers
                  Earnings recovery expectations push stock
                                                                                            Markets react to current or normalized P/E
                  to top end of range in past easing                                                                                                                          Current EPS or normalized EPS levels rise (+)
                                                                                            (+/-)
                  environments (+)
                                                                                            Focus on drivers other than profits, such as                                                                           Reforms take longer than expected to advance
                                                                                            public funds repayment (+)                                                                                                                   (-)
                                            Search for small/mid-sized stocks with                                  Search for small/mid caps expected to see
                                            strong quarterly earnings (+)                                                     profits decline QoQ (-)

                                            Yield curve steepening in reaction of           Near-term downshift or flattening of yield
                                                                                                                                            Inflation expectations rise and long-term yields stabilize as result of additional easing (+)
                                            recovery in macro environment (+)               curve due to additional easing (-)
                                                                    Reflation trade (stocks that benefit
                                                                    significantly from rising asset prices) (+)




                                                                                                                                                                                                                                                                                     11
Source: Morgan Stanley Research estimate
                                                                                      MORGAN STANLEY MUFG RESEARCH
                                                                                                             June 27, 2013


Stock selection within Group 1: Brokers. TSE trading value by investment type: Pace slowing
from \4trn ADV level in Apr-May to low \3trn range in Jun. Hard to predict normalized levels
ahead. Increase in primary flows is a higher conviction scenario in next 3-6 months.
    Avarage Daily Trading Value (¥bn)
                                                                                    3.8 trn    Chg from
   4,000
                                                                                               3QF12
                                                                                     311
   3,500

                                                                                                51%
   3,000
                                                                                                Foreigner
                                                          2.4 trn                               +1100 bn
   2,500                                                                            1,878       yen
                                                            228
   2,000
                             1.4 trn
   1,500                                                   1,167                                29%
                                 154
                                                                                     689       Retail
   1,000                                                                                       Margin
                                 773
                                                            390                                +¥530 bn
                                                                                     439       Retail Cash
      500                        160                        247                                +¥330 bn
                                 113                                                 437
                                 237                        333
          0
                                3QF12                      4QF12                    4-6(2W)
                             Prop       Retail Cash   Retail Margin   Foreigner   Others

 Source: TSE, Morgan Stanley Research
                                                                                                                             12
                                                                       MORGAN STANLEY MUFG RESEARCH
                                                                                                June 27, 2013



Stock selection within Group 1: Brokers, TOPIX and ADV: April ADV of \3.5trn matched past peak
levels (4Q F3/06, 4Q F3/07), and Apr-Jun average exceeded that. Future run rate is the issue.

 TOPIX                                                                    ADV (Quarterly Avg, Bn Yen)

 2,000                                                                                      4,000

 1,800
                                                                                            3,500
 1,600
                                                                                            3,000
 1,400
                                                                                            2,500
 1,200

 1,000                                                                                      2,000

   800
                                                                                            1,500
   600
                                                                                            1,000
   400
                                                                                            500
   200

       0                                                                                    0




                )
       20 / 6
      13 12
               2

       20 / 6

               2
               2

       20 / 6
       20 / 6
               2
       20 / 6

               2
       20 / 6

               2




       20 /6
       20 / 6

               2
       20 / 6

               2




              w
            /1
            /1
            /1
            /1
            /1
            /1
            /1
            /1




           12
           11
           10
           08



           09
           07
           06
           05
           04




           (3
    20 12/
         11
         10
         09
         08
         07
         06
         05
         04




        20
        20
        20
        20



        20
        20
        20
        20
        20




        /6
                                           ADV     TOPIX

 Source: TSE, Morgan Stanley Research
                                                                                                                13
                                                                                                                          MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                 June 27, 2013


Stock selection within Group 1: Brokers. Why we recommend Nomura: Valuation yardstick
changes when secondary volumes change. Assuming \3.0-3.5trn ADV, current P/E does not look
demanding, and primary flows can lift EPS further.



                                    Estimated EPS by different ADV                                           F3/13
                                                                                                Price                     P/E Multiples by ADV
                                        (Trn Yen) assumptions                                               EPS (A)
                                          2.5        3.0         3.5                           2013/6/26        EPS         2.5      3.0      3.5
 Nomura      8604-TO                       64         70          76                                 698        29.4       10.9     10.0      9.2
 Daiwa       8601-TO                       77         87          97                                 774        43.0       10.1      8.9      8.0
 Okasan      8609-TO                       98        118         138                                 732        72.2 **     7.5      6.2      5.3
 Tokai Tokyo 8616-TO                       57         67          78                                 627        42.7       11.0      9.3      8.1
 Ichiyoshi   8624-TO                      156        190         224                               1,018        78.3        6.5      5.4      4.6
 Matsui      8628-TO                       52         62          72                                 811        25.0       15.6     13.1     11.3
 Monex       8698-TO                    1,861      2,720       3,579                              32,050     1,301.7       17.2     11.8      9.0
 Kabu.com 8703-TO                          27         34          40                                 460        13.1       16.9     13.7     11.5




 **: Adjusted for one off items
 Source: Company Data, Morgan Stanley Research
 For important disclosures regarding companies that are the subject of this screen, please see the Morgan
 Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures.                                                                               14
                                                                                                                                  MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                        June 27, 2013


Stock selection within Group 1: Consumer finance-related. Build around Aeon Financial, as this and
Rakuten group rank high in consumer lending balances in F12 and growth rates increase in F13;
keyword is customer access points that other firms don’t have

                (bn yen)
    1,600                                                                                                                                        25%
                                                           FY2012
                                                                                                                                                 20%
    1,400
                                                           YoY
                                                                                                                                                 15%
    1,200
                                                                                                                                                 10%
    1,000
                                                                                                                                                 5%

       800                                                                                                                                       0%

                                                                                                                                                 -5%
       600
                                                                                                                                                 -10%
       400
                                                                                                                                                 -15%
       200
                                                                                                                                                 -20%

          0                                                                                                                                      -25%
                  MUFG          SMFG          Shinsei       Mizuho          Cr            Aiful       Rakuten            Aeon     Orix   Marui
                                                                          Saison                                         Credit
  Note : Bar chart shows the sum of the cash in advance and other uncollateralized loan. Revolving loans are excluded.
  Source: Company Data, Morgan Stanley Research

 For important disclosures regarding companies that are the subject of this screen, please see the Morgan
 Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures.                                                                                      15
                                                                                                               MORGAN STANLEY MUFG RESEARCH
                                                                                                                                   June 27, 2013



Stock selection within Group 1: Consumer finance-related. We recommend focus on AEON Financial
(8570) as EPS upside expectations would widen if the market is convinced its targets are


        AEON Financial Diluted EPS forecast comparison                              AEON Financial unsecured cons. loan est. comparison

                                                                                 1,200   (bn yen)
        Diluted EPS (Yen)
 300
             Morgan Stanley estimates              Consensus          Ce
                                                                           267
                                                                                 1,000
                                                                                              Revolving

 250
                    e: CAGR 19%(3yrs)                                                         Cash Advancement                     240
                   Ce: CAGR 30%(3yrs)                                224
                                                       209                        800         Loan Only card
                                                                                                                        236
 200                                                         192
                                        175
                                           169                                    600
                                                                                                                                   470
 150
                         134130                                                                            190          409
                               120                                                400
                                                                                            177
 100
              78                                                                  200                      277
                                                                                            230                                    300
                                                                                                                        231
   50                                                                                                      71
                                                                                    0        34
             F3/13         F3/14e         F3/15e            F3/16e    F3/17e
                                                                                            F3/13         F3/14e       F3/17e    F3/17Ce

 Ce= Company estimate e= Morgan Stanley research estimate
 Consensus: Thomson Reuters
 Source: Company Data, Morgan Stanley Research
                                                                                                                                                   16
                                                                                                                                                                                                                 MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                                                                                  June 27, 2013



  Stock selection within Group 2: Banks. While range trading is the market’s theme,
  we would position around megabanks with high liquidity and stable, high-level ROE


                     Japanese banks laggard status has unwound during P/B                                                                                                       Recovery in earnings momentum, low P/B, potential
                    recovery, and P/B has almost converged with global levels                                                                                                                 increase in dividends
                    1.1
                                                                       D Bank
                                                                       G Banks                                                                                                                       Adj. PBR       ROE
                    1.0                                                                                                                                                                    Code        (F3/13)     F3/13    F3/14e    F3/15e     F3/16e
                                                                                                                                                                           Mizuho FG       8411           0.89    11.1%      9.1%      8.8%       8.6%
                                                                                                                                                                           SMFG            8316           0.91    13.7%      9.3%      9.0%       9.0%
                    0.9
                                                                                                                                                                           SMTH            8309           0.80     7.6%      7.9%      7.7%       8.2%
                                                                                                                                                                           Aozora          8304           0.93    10.1%     11.1%     11.1%       9.9%
  PBR (adj basis)




                    0.8                                                                                                                                                    Shinsei         8303           0.87     8.5%      6.8%      7.4%       8.1%
                                                                                                                                                                           Resona          8308           0.92    24.6%      9.9%      8.2%       8.2%
                    0.7                                                                                                                                                    cf) MUFG         8306          0.72      8.1%      6.8%

                    0.6
                                                                                                                                                                                                        Price       DPS                  Div
                                                                                                                                                                                           Code     2013/6/26      F3/13   F3/14e         Yld    F3/15e    F3/16e
                    0.5                                                                                                                                                    Mizuho FG       8411           193        6.0      6.0       3.1%         6.0      6.0
                                                                                                                                                                           SMFG            8316         4,290      120.0    110.0       2.8%      110.0     110.0
                    0.4
                                                                                                                                                                           SMTH            8309           406        9.0     11.0       2.2%       12.0      13.5
                                                                                                                                                                           Aozora          8304           292       13.9     14.2       4.8%       14.2      12.7
                                   Dec-10




                                                                                          Dec-11




                                                                                                                                                Dec-12
                          Oct-10




                                            Feb-11

                                                     Apr-11

                                                              Jun-11

                                                                        Aug-11

                                                                                 Oct-11




                                                                                                   Feb-12

                                                                                                            Apr-12

                                                                                                                     Jun-12

                                                                                                                              Aug-12

                                                                                                                                       Oct-12




                                                                                                                                                         Feb-13

                                                                                                                                                                  Apr-13




                                                                                                                                                                           Shinsei         8303           203        1.0      1.0       0.5%         1.0      1.0
                                                                                                                                                                           Resona          8308           460       12.0     15.0       2.6%       15.0      15.0
                                                                                                                                                                                                                         Ce
                                                                                                                                                                           cf) MUFG         8306           578      13.0     14.0       2.4%

                     Recent correction has left Japanese bank P/B
                     marginally below the level of global banks
                                                                                                                                                                           Stock price as of Jun 26 2013. Adjusted PBR= Price to adjusted PBR (adjusted
                                                                                                                                                                           BPS=stated BPS +/- change in equity portfolio value
                                                                                                                                                                           Note: MUFG’s F3/14 is from Thomson Reuters, and Company forecast on DPS



e = Morgan Stanley estimate, Source: Company Data, Morgan Stanley Research

                                                                                                                                                                                                                                                                  17
                                                                                                                                                                                                  MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                                                      June 27, 2013



Stock selection within Group 2: Banks. Extra growth in lending that improves the domestic NII
outlook further would be the catalyst to break above the valuation range



             Signs of increased borrowing demand seen in inflation outlook

            Loan Growth (YoY)                                                                                                             Price Expectation (12 mos ahead)

          6.0%
                                                                                                                                                                                                   85
          4.0%

          2.0%                                                                                                                                                                                     75

          0.0%                                                                                                                                                                                     65
         -2.0%
                                                                                                                                                                                                   55
         -4.0%
                                                                                                                                                                                                   45
         -6.0%

         -8.0%                                                                                                                                                                                     35

       -10.0%                                                                                                                                                                                      25
                  04/04
                          09/04
                                  02/05
                                          07/05
                                                  12/05
                                                          05/06
                                                                  10/06
                                                                          03/07
                                                                                  08/07
                                                                                          01/08
                                                                                                  06/08
                                                                                                          11/08
                                                                                                                  04/09
                                                                                                                          09/09
                                                                                                                                  02/10
                                                                                                                                          07/10
                                                                                                                                                  12/10
                                                                                                                                                          05/11
                                                                                                                                                                  10/11
                                                                                                                                                                          03/12
                                                                                                                                                                                  08/12
                                                                                                                                                                                          01/13
                                                          All Banks                       Major Banks                             Expectation



Source: BoJ, Morgan Stanley Research
                                                                                                                                                                                                                                      18
                                                                                                                      MORGAN STANLEY MUFG RESEARCH
                                                                                                                                          June 27, 2013



Stock selection within Group 2: Other Financials. Why we recommend Orix: Greater degree of
bottom line improvement than at major banks. We assume P/B will carry a premium vs. major banks.

                      Comparison of net profit forecast for Orix: Ce, consensus, MSe
                                                                                                                            Premium relative to
                      250                                                                                                   major bank valuations
                                                                                                                            can be earned if the
                                                                                                                            market’s growth rate
                                                                                                                            expectation picks up
                      200                                                                                                   from 13% to somewhere
                                                                       Ce CAGR 22%
                                                                       Consensus 13%                                        near the 22% in Orix’s
                                                                                                                            plan.
Net Profit (Bn Yen)




                      150




                      100




                       50




                        0
                                       3/2013                       3/2014                   3/2015          3/2016

                                                           Ce     Consensus       Morgan Stanley estimates



                            Source: Company Data, Thomson Reuters, Morgan Stanley Research
                            Consensus: Thomson Reuters

                                                                                                                                                          19
                                                                                                                                                                                                           MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                                                                                                       June 27, 2013


  Stock selection within Group 2: Nonlife insurance. Faster pace of recovery in economic profit
  and capital and positive changes in stated profits and shareholder return policy to drive rebound
  in valuations on real profit basis

                              Domestic nonlife OP and market cap                                                                                              Domestic nonlife subsidiaries’ combined ratios
OP (¥bn)                                                                                                                       Mkt Cap (¥trn)

800                                                                                                                                         6.0
                                                                                                                                                  130%
600                                                                                                                      Estimate
                                                                                                                                                                    Tokio Marine        MS&AD          NKSJ
                                                                                                                                            5.0   120%
400
                                                                                                                                                  110%
                                                                                                                                            4.0
200
                                                                                                                                                  100%

   0                                                                                                                                        3.0   90%


-200                                                                                                                                              80%
                                                                                                                                            2.0
                                                                                                                                                  70%
-400
                                                                                                                                            1.0   60%
-600
                                                                                                                                                  50%
-800                                                                                                                                        0.0
                                                                                                                                                  40%
       4/02

              12/02

                      9/03

                             6/04

                                    2/05

                                           11/05

                                                   8/06

                                                          5/07

                                                                 1/08

                                                                        10/08

                                                                                  7/09

                                                                                         4/10

                                                                                                12/10

                                                                                                        9/11

                                                                                                               6/12

                                                                                                                      3/13

                                                                                                                             12/13

                                                                                                                                     8/14




                                                                                                                                                         04


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                                                                                                                                                                                                           09


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                                                                                                                                                                                                                               11


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                                                                                                                                                                                                                                                              e


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                                                                                                                                                                                                                                                                  3/


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                                                                                                                                                                                                                                                                                      3/
                              Adj UW P               Net Inv Inc                Mkt Cap ex Stock Val                   OP




                                                                                                                                                              e = Morgan Stanley Research estimate
Note: Total OP and market capitalization of listed non life insurance company
                                                                                                                                                              Source: Company Data, Morgan Stanley Research
                                                                                                                                                                                                                                                                                            20
                                                                                                                               MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                 June 27, 2013



  Stock selection within Group 2: Comparison of 3 core nonlife insurers. Profits set
  for steady improvement across the board thanks to domestic nonlife profit recovery
                                                   Tokio Marine                                                              NKSJ
                                                F3/13Ce                                          Diff.                      F3/13Ce                            F3/16      Diff.
(¥bn)                         F3/11    F3/12                F3/13   F3/14Ce           Plan               F3/11      F3/12               F3/13   F3/14Ce
                                                   BOP                                        w/F13e                            BOP                       Plan(New)    w/F13e
Domestic Non-life              20.4    -26.1        42.0     48.3      70.0       80-90         15.0      21.3      -71.3      -33.2     -8.9      12.9       70-80      62.1
Domestic Life                  27.5     16.7        53.0    110.3      63.0       60-70          2.0      59.8      100.0       85.0    107.8      95.0     100-110      10.0
Overseas Insurance Business    24.8    -11.9        68.0     69.2      90.0      90-100          5.0       2.4      -19.7        6.3     11.8       4.3       14-20      12.7
Financial Service. Others      -0.7      2.6         2.0    -18.7       3.0         3-5          1.0      -2.7       -7.6       -4.3      0.7       1.1          2-3      1.4
Total                          72.0    -18.7      165.0     209.1     226.0     230-260         19.0      80.7        1.2       53.7    111.6     113.5     180-210      81.5
Composition
Domestic Non-life              32%                 25%       23%       31%         35%                    54%                 -62%       -8%       11%         38%
Domestic Life                  24%                 32%       53%       28%         26%                    44%                 158%       97%       84%         53%
Overseas Insurance Business    44%                 41%       33%       40%         38%                     6%                  12%       11%        4%          9%
Financial Service. Others       1%                  1%       -9%        1%          2%                    -3%                  -8%        1%        1%          1%
Total                         100%                100%      100%      100%        100%                   100%                 100%      100%      100%        100%
Adjusted ROE                  2.4%    -0.7%        5.8%      5.0%     6.6%      over 7%                  4.2%       0.1%       2.7%     5.4%      4.9%      over 7%
Notes
Target Achievement Year                                                         F3/15                                                                       F3/16

                                                   MS&AD
                                               F3/13Ce                                     Diff.
(¥bn)                         F3/11   F3/12                F3/13 F3/14Ce       Plan
                                                  BOP                                   w/F13e
Domestic Non-life               6.5     19.7       53.0     61.9     68.0      60.0       -8.0
Domestic Life                   4.1      4.3        5.0      9.8     16.0      15.0       -1.0
Overseas Insurance Business     1.8   -112.3       20.0     13.5     24.0      30.0        6.0
Financial Service. Others       1.9      0.7        2.0      2.0      3.0       5.0        2.0
Total                          14.5    -87.5       80.0     87.4    110.0     110.0
Composition                                                                         Tentative target for
Domestic Non-life              54%                66%       71%      62%       55%   F3/16 is ¥160bn
Domestic Life                  44%                 6%       11%      15%       14% core profit and 9% (¥
                                                                                    180bn per Tokio’s
Overseas Insurance Business     6%                25%       15%      22%       27%
                                                                                        definition)
Financial Service. Others      -3%                 3%        2%       3%        5%
Total                         100%               100%      100%     100%      100%
Adjusted ROE                  0.8%    -5.6%       5.7%     5.0%     5.6%      7.0%                               Ce= Company estimate
                                                                                                                 Source: Company Data, Morgan Stanley Research

                                                                                                                                                                                  21
                                                                                                                                         MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                       June 27, 2013


Stock selection within Group 2: Life insurance. Reasons for recommending Daiichi Life: Visible
changes accelerating, incl. economic value-based profits, reported profits and shareholder
returns. Meanwhile valuation is very cheap

        Dai-ichi Life: ROEV improvement alone may                                                                 Re-rating more likely if the market gets a sense
                 not lead to recovery in P/EV                                                                         of real improvement in firm’s economic
                                                                                                                        condition via more visible changes
       30.0%                                                             0.60
                                                                                                         10,000                                                                5.0%
       25.0%                                           ROEV
                                                       P/EV              0.50                             9,000                                                                4.5%
       20.0%
                                                                                                          8,000                                                                4.0%
       15.0%
                                                                         0.40                             7,000                                                                3.5%
       10.0%




                                                                                         EPS、DPS (Yen)
                                                                                                          6,000                                                                3.0%




                                                                                                                                                                                      Stated ROE
ROEV




                                                                                P /E V
        5.0%                                                             0.30
                                                                                                          5,000                                                                2.5%

        0.0%                                                                                              4,000                                                                2.0%
                                                                         0.20
        -5.0%                                                                                             3,000                                                                1.5%

       -10.0%                                                                                             2,000                                                                1.0%
                                                                         0.10
       -15.0%                                                                                             1,000                                                                0.5%

       -20.0%                                                            0.00                                0                                                                 0.0%
                3/2011   3/2012   3/2013   3/2014e   3/2015e   3/2016e                                              3/2011   3/2012   3/2013     3/2014e   3/2015e   3/2016e

                                                                                                                                      EPS      DPS   ROE

 3/2013-3/2014e show ROEV including the effect of interest rate and TOPIX changes.
 3/2015e-3/2016e show core ROEV forecasts that do not assume changes in the external environment.



e= Morgan Stanley research estimate
Source: Company Data, Morgan Stanley Research

                                                                                                                                                                                       22
           MORGAN STANLEY MUFG RESEARCH
                               June 27, 2013




Appendix




                                               23
                                                                                                                              MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                    June 27, 2013




  Where do we stand now?

                                                        Market cap-based weighted avg. P/B is 0.88x

                 3.90

                 3.60

                 3.30
                                                                                                                              8410
                 3.00
                                                                                                                     8697
                 2.70                                                                                8628

                 2.40
                                                                                                                      8703
                 2.10                                                                                       8570
                                                                                                                                         8515
                 1.80                                                                                       8572
                                                                                                  8358

                 1.50
                                                                                                                   8601                   8616
                                                              8595
                                                                                         8253                         8425
                 1.20                                                          8593
                                                    8698               8604
                                                                          8586
                                                                               8303 8304               8439
                 0.90                                                8332 84738316       8411
                                                                   8309
                                                              8333    8355                    8308
                                   8795    8766
                                            8729                   8306    8331 8591          8424
                 0.60
                                                           8377 8354                   8566
                                 8750      8630                        8418 8511
                 0.30               8725
                     -9.0%      -7.0%    -5.0%        -3.0%       -1.0%       1.0%       3.0%   5.0%        7.0%       9.0%      11.0%      13.0%

                                                           Note: P=6/26/2013, Beta= 1yr, ROE=FY12e

Note: P/E not P/B shown for lifers and P/NAV for non-life
Source: Morgan Stanley Research, ROE estimates (E, e) from Thomson Reuters consensus
                                                                                                                                                                    24
                                                                                                                                                  MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                        June 27, 2013




Valuation comps based on consensus
                                               Price (JPY) Shs Out. Mkt Cap                        EPS Est.                           P/E                  PBR       ROE     Div         Chg from
                        Ticker     Sub Industry
                                                06/26/13 (mil shs) (Bil Yen)            FY13E       FY14E     FY15E        FY13E    FY14E       FY15E     Latest    FY13E Yld (13E)   52w H    52w L
AIFUL CORP              8515     Consumer Loan         803       240      193              99.7        66.1                    8.1       12.2                1.88     20.0%  0.00%      -52%     548%
ACOM CO                 8572     Consumer Loan       2,871       157      450             252.3       272.0       345.3       11.4       10.6       8.3      1.61     13.3%  0.39%      -42%     107%
                                                           Total          643                                Mean              9.7       11.4                1.74
                                                                                                             Median            9.7       11.4                1.74
CREDIT SAISON CO        8253        Credit Card         2,290             184     421     181.9        187.4      187.1       12.6       12.2      12.2      1.07     8.2%    1.33%     -24%     41%
POCKET CARD CO LTD      8519        Credit Card           543              78      42      36.9         41.3       46.3       14.7       13.1      11.7      0.79     5.2%    1.57%     -48%     86%
AEON CREDIT SERV        8570        Credit Card         2,555             187     479     135.1        167.8      185.7       18.9       15.2      13.8      2.07    10.6%    2.21%     -22%     86%
JACCS CO LTD            8584        Credit Card           448             175      78      41.9         43.2                  10.7       10.4                0.66     6.0%    2.23%     -37%     97%
ORIENT CORP             8585        Credit Card           214             682     146      14.9         39.4                  14.4        5.4                0.77     0.8%    0.00%     -55%    130%
APLUS FINANCIAL         8589        Credit Card           137           1,524     209       2.4          2.5                  56.8       54.1                2.26     3.9%    0.00%     -52%    211%
                                                                Total           1,375                        Mean             18.3       15.8      11.5      1.27
                                                                                                             Median           14.4       12.2      12.4      0.93
FUYO GENERAL LEASE      8424          Leasing           3,305             30      100     546.4        575.2                   6.0        5.7                0.64    10.2%    2.18%     -31%     63%
IBJ LEASING CO LTD      8425          Leasing           2,666             36       97     342.6        340.6                   7.8        7.8                1.20    14.5%    1.95%     -34%     44%
CENTURY TOKYO LEASING   8439          Leasing           2,368            106      252     290.2        304.3      334.3        8.2        7.8       7.1      1.13    13.1%    2.24%     -30%     87%
RICOH LEASING           8566          Leasing           2,404             31       75     336.4        329.7                   7.1        7.3                0.63     8.5%    1.87%     -31%     42%
HITACHI CAP CORP        8586          Leasing           1,823            117      213     165.4        189.3      213.7       11.0        9.6       8.5      0.76     6.7%    2.26%     -33%     48%
MITSUBISHI UFJ LEA      8593          Leasing             442            889      393      38.4         40.4       43.1       11.5       11.0      10.3      0.88     7.4%    1.52%     -31%     49%
NEC CAPITAL SOLUTI      8793          Leasing           1,822             22       39     181.1        185.8                  10.1        9.8                0.58     5.6%    2.41%     -58%     96%
                                                                Total           1,168                        Mean              8.8        8.4       8.6      0.83
                                                                                                             Median            8.2        7.8       8.5      0.76
SBI HOLDINGS INC        8473     Diversified / Misc.    1,014             216     219      93.5         91.3      114.3       10.8       11.1       8.9      0.72     6.5%    0.99%     -49%    123%
JAPAN SECS FINANCE      8511     Diversified / Misc.      649              93      60      27.5         36.1                  23.6       18.0                0.51     2.1%    2.16%     -40%     95%
ORIX CORP               8591     Diversified / Misc.    1,180           1,221   1,441     110.9        125.9      138.8       10.6        9.4       8.5      0.88     8.0%    1.19%     -30%     69%
JAFCO CO LTD            8595     Diversified / Misc.    3,385              44     150     149.8        162.8      170.8       22.6       20.8      19.8      1.33     5.8%    0.89%     -35%    162%
JAPAN EXCHANGE          8697     Diversified / Misc.    9,250              46     425     445.7        466.7      483.6       20.8       19.8      19.1      2.88    13.1%    0.86%     -24%    217%
SPARX GROUP CO.LTD      8739     Diversified / Misc.   14,650               2      30     -41.3         10.1              NM       NM                        3.37    -1.0%    0.02%     -62%    202%
                                                                Total           2,326                        Mean             17.7       15.8      14.1      1.62
                                                                                                             Median           20.8       18.0      14.0      1.11
DAIWA SECS GROUP        8601          Broker              774           1,699   1,315       74.4        68.2       68.9       10.4       11.3      11.2      1.71    15.5%    2.58%     -25%    205%
NOMURA HOLDINGS         8604          Broker              698           3,711   2,590       53.2        55.4       61.5       13.1       12.6      11.4      1.23     9.1%    1.97%     -29%    185%
TOKAI TOKYO F HLDG      8616          Broker              627             264     166       41.2        42.3                  15.2       14.8                1.36     8.8%    1.91%     -33%    161%
ICHIYOSHI SECS CO       8624          Broker            1,018              43      44      180.1       180.1                   5.7        5.7                1.63    25.9%    3.93%     -40%    180%
MATSUI SECURITIES       8628          Broker              811             257     208       56.9        58.0       59.2       14.3       14.0      13.7      2.58    18.1%    4.16%     -39%     96%
MONEX GROUP INC         8698          Broker           32,050               3      96    3,907.0     3,977.0    3,260.2        8.2        8.1       9.8      1.21    14.0%    4.20%     -37%    197%
KABU.COM SECURITIE      8703          Broker              460             176      81       37.5        41.2       23.2       12.3       11.2      19.8      2.25    17.2%    2.30%     -43%    121%
                                                                Total           4,500                        Mean             11.3       11.1      13.2      1.71
                                                                                                             Median           12.3       11.3      11.4      1.63




   E= Thomson Reuters consensus (June 26, 2013), IFIS, our estimation for Aeon Credit
   Source: Thomson Reuters, company data, Morgan Stanley Research                                                                                                                                       25
                                                                                                                                                       MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                            June 27, 2013




Valuation comps based on consensus
                                                    Price (JPY) Shs Out. Mkt Cap                        EPS Est.                            P/E                  PBR      ROE        Div       Chg from
                        Ticker      Sub Industry
                                                     06/26/13 (mil shs) (Bil Yen)          FY13E         FY14E       FY15E       FY13E     FY14E      FY15E     Latest   FY13E Yld (13E) 52w H       52w L
NKSJ HOLDINGS INC        8630         Insurance           2,211       415      917            101.7          80.4        187.6      21.7       27.5      11.8      0.41     3.3%     2.73%    -20%      59%
MS&AD INS GP HLDGS       8725         Insurance           2,355       622    1,465            177.4         184.3        212.2      13.3       12.8      11.1      0.48     5.4%     2.36%    -26%      98%
SONY FINANCIAL HOL       8729         Insurance           1,493       435      649             95.3         102.7        112.3      15.7       14.5      13.3      0.55     9.2%     1.77%    -12%      36%
DAI-ICHI LIFE INS        8750         Insurance        134,700         10    1,335          4,160.4       5,097.7      6,221.8      32.4       26.4      21.6      0.37     2.5%     1.39%    -21%      81%
TOKIO MARINE HLDG        8766         Insurance           2,991       767    2,294            208.9         223.6        259.7      14.3       13.4      11.5      0.66     6.7%     2.03%    -17%      75%
T&D HOLDINGS INC         8795         Insurance           1,238       674      835             88.6          95.0        107.4      27.9       26.1      11.5      0.48     6.4%     1.89%    -20%      68%
                                                                Total        7,495                                  Mean            20.9       20.1      13.5      0.49 PBR= P/NAV (Non-Life)
                                                                                                                    Median          18.7       20.3      11.7      0.48 PBR= P/EV (Life)
SHINSEI BANK             8303        Major Bank           203          2,654         539         18.9        21.1         21.7      10.7        9.6       9.4      0.87     7.8%     0.54%    -31%     145%
AOZORA BANK              8304        Major Bank           292          1,166         341         31.4        33.6         29.5       9.3        8.7       9.9      0.93     9.9%     4.78%    -14%      70%
MITSUBISHI UFJ FIN       8306        Major Bank           578        14,155        8,182         56.5        59.4         64.4      10.2        9.7       9.0      0.72     6.9%     2.40%    -23%      68%
RESONA HOLDINGS          8308        Major Bank           460          2,443       1,124         55.3        56.0         61.9      17.6        8.2       7.4      0.92    10.8%     3.09%    -20%      53%
SUMITOMO MITSUI TH       8309        Major Bank           406          3,685       1,496         36.4        38.5         42.6      11.1       10.5       9.5      0.80     7.5%     2.37%    -37%      92%
SUMITOMO MITSUI FG       8316        Major Bank         4,290          1,354       5,808        452.0       453.9        485.6       9.5        9.5       8.8      0.91     9.3%     2.67%    -14%      84%
MIZUHO FINL GP           8411        Major Bank           193        24,143        4,660         21.7        21.2         22.8       8.9        9.1       8.5      0.89     9.1%     3.11%    -17%      62%
                                                                 Total            22,149                            Mean            11.1        9.3       8.9      0.86
                                                                                                                    Median          10.2        9.5       9.0      0.89
HOKUYO BANK              8524       Regional Bank         328              399       131         52.6        49.6         43.6       6.2        6.6       7.5      0.33     6.8%     1.52%    -17%      92%
CHIBA BANK               8331       Regional Bank         612              860       526         52.4        52.4         54.0      11.7       11.7      11.3      0.73     6.1%     1.96%    -23%      38%
BK OF YOKOHAMA           8332       Regional Bank         467            1,308       611         42.7        43.3         44.9      10.9       10.8      10.4      0.73     6.5%     2.43%    -26%      35%
JOYO BANK                8333       Regional Bank         484              751       363         31.8        31.1         31.6      15.2       15.6      15.3      0.72     4.7%     1.84%    -23%      44%
FUKUOKA FINANCIAL        8354       Regional Bank         380              859       326         35.9        36.3         36.5      10.6       10.5      10.4      0.49     4.6%     2.66%    -29%      39%
SHIZUOKA BANK            8355       Regional Bank         969              649       628         69.5        66.5         69.1      14.0       14.6      14.0      0.78     5.5%     1.57%    -26%      24%
SURUGA BANK              8358       Regional Bank       1,611              236       380         97.5       104.8        112.4      16.5       15.4      14.3      1.72    10.0%     0.97%    -19%     112%
HOKUHOKU FINANCIAL       8377       Regional Bank         182            1,339       244         11.5        11.5         10.7      15.8       15.8      17.0      0.57     3.6%     2.20%    -25%      82%
SEVEN BANK               8410       Regional Bank         344            1,191       410         18.5        19.3                   18.6       17.8                2.97    15.2%     2.03%    -13%      83%
YAMAGUCHI FINANCIA       8418       Regional Bank         876              262       229         88.6        66.2        77.0        9.9       13.2      11.4      0.45     4.6%     1.37%    -20%      42%
                                                                 Total             3,849                            Mean            12.9       13.2      12.4      0.95
                                                                                                                    Median          12.8       13.9      11.4      0.72
DATE                                                 6/26/13        YTD          FYTD
TOPIX                  TPX-TO                         1,069.28       24.4%          3.3%                                                                                                     -17%      52%
TOPIX-BANKS            111007050-      BANK             162.54       24.1%         -1.1%                                                                                                     -21%      60%
TOPIX-BROKER           111007100-     BROKER            409.04       45.2%         13.8%                                                                                                     -29%     180%
TOPIX-INSURANCE        111007150-   INSURANCE           624.74       22.0%         11.0%                                                                                                     -19%      73%
TOPIX-NON BANK         111007200-    NON BANK           435.75       17.6%         -2.7%                                                                                                      45%      96%
20 Year JGB Rate (%)                                      1.75         -0.3          36.3 bps




E= Thomson Reuters consensus (Jun 26, 2013) Source: Thomson Reuters, company data, Morgan Stanley Research




                                                                                                                                                                                                            26
                                                                                                                                                   MORGAN STANLEY MUFG RESEARCH
                                                                                                                                                                                           June 27, 2013



Interest rate moves and financial stocks (yield curve trends): Major banks and lifers tend
to outperform during steepening; assume similar trend for short-term steepening too

          During yield curve flattening
                                  2 Yr JGB     Duration     Velocity US 2-10                                                                   Rel to TOPIX
         From           To       -10 Yr JGB                           Yr Yld             Major  Regional                                  Non      Major   Regional                                  Non
                                                (days)      per day             TOPIX                    (Nonlife)   (Life)    Brokers                              (Nonlife)   (Life)    Brokers
                                   Change                            change              Banks   Banks                                   Banks    Banks     Banks                                   Banks
1       1993/05/24    1993/08/30       -0.46             98    -0.47    -0.39     4.2%      17%     13%        3%                   6%      15%       13%       9%       -1%                   2%      11%
2       1994/08/08    1995/04/17       -0.48         252       -0.19    -0.50   -21.4%     -19%     -19%     -24%                 -32%     -29%        3%       3%       -3%                 -11%      -8%
3       1995/11/20    1998/10/05       -2.13       1,050       -0.20    -0.33   -31.6%     -70%     -28%     -14%                 -67%      13%      -38%       4%       17%                 -36%     45%
4       1999/02/15    1999/05/17       -0.63             91    -0.70     0.22    20.8%      31%       3%       9%                  59%      24%       11%      -18%     -12%                  39%      3%
5       1999/10/25    2003/06/16       -1.28       1,330       -0.10     1.76   -43.1%     -83%     -34%     -28%                 -40%     -58%      -40%       9%       15%                   3%     -15%
6       2004/08/02    2008/10/13       -0.99       1,533       -0.06     0.60   -26.0%     -10%     -16%     -18%        -7%      -27%     -64%       16%      10%        8%       19%        -1%     -38%
7       2010/04/12    2010/10/18       -0.50         189       -0.26    -0.66   -16.5%     -24%     -17%     -19%      -56%       -38%     -22%       -7%       -1%      -3%       -39%      -21%      -5%
8       2011/04/11    2013/04/08       -0.69         728       -0.10    -1.25    29.3%      70%      97%      17%      -13%        79%     120%       41%      68%      -12%       -42%       49%     91%




      During yield curve steepening
                                 2 Yr JGB      Duration  Velocity US 2-10                                                                      Rel to TOPIX
         From           To      -10 Yr JGB                         Yr Yld                Major  Regional                                  Non      Major   Regional                                  Non
                                                (days)   per day                TOPIX                    (Nonlife)   (Life)    Brokers                              (Nonlife)   (Life)    Brokers
                                  Change                          change                 Banks   Banks                                   Banks    Banks     Banks                                   Banks
1       1990/12/10   1993/05/24        2.35          896     0.26     1.30       -8.3%      -2%      8%     -15%                    7%       1%        7%      16%       -7%                 15%        9%
2       1993/08/30   1994/08/08        0.74          343        0.22    -0.54    -1.2%     -10%     -13%      -6%                   3%      -8%       -8%     -12%       -5%                   4%      -6%
3       1995/04/17   1995/11/20        1.03          217        0.47    -0.09    11.8%     12%        8%      10%                 16%       12%       0%       -4%       -2%                   4%      0%
4       1998/10/05   1999/02/15        1.40          133        1.05     0.01     9.9%     56%        3%       7%                   9%      -2%      46%       -7%       -2%                  -1%     -12%
5       1999/05/17   1999/10/25        0.52          161        0.32    -0.11    16.0%     28%       14%       5%                 46%       21%      12%       -2%      -11%                 30%       5%
6       2003/06/16   2004/08/02        1.24          413        0.30    -0.21    30.2%    175%       39%      81%      105%       34%       72%     145%        9%       51%       75%         3%     41%
7       2008/10/13   2010/04/12        0.56          546        0.10     0.41    18.3%      -5%      13%      -5%      -16%       -23%     -15%      -23%      -5%      -23%      -34%       -41%     -34%
8       2010/10/18   2011/04/11        0.37          175        0.21     0.61     2.6%       6%      -2%      -6%       59%        -1%      11%       4%       -4%       -8%       57%        -4%      8%
9       2013/04/08   2013/06/24        0.32              77     0.41     0.64    -1.1%      -9%     -20%       4%       34%         4%     -16%       -8%     -19%        5%       35%         5%     -15%




    Note: Oct 2008-Jun 2010 was when major financials made a series of early capital enhancements via an increase in capital.
    Note: Yield curve flattening and steepening are defined as when the 10yr-2yr JGB spread moved (up/down) by more than 40bps and the absolute
    performance and relative performance vs. TOPIX are compared. Data for each sub-industry (Major bank index, regional banks (top 10 in market cap),
    non-life and lifers) based on total market cap for each sub-industry

Source: Thomson Reuters, Bloomberg, Morgan Stanley Research                                                                                                                                                27
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  Reference: Interest rate moves and financial stocks (short/mid-term): Mid-term interest rate hikes
  tend to coincide with more sustainable economic recoveries, but Japan unlikely to be in such
  situation for some time. Exit from ZIRP not assumed for a while either


         During interest rate falls
                                                    Velocity             chg (%)                                                             rel to TOPIX
                              O/N - 2 Yr Duration
        From        To                               (bps)   US O/N -              Major    Regional                                 Non       Major        Regional                                  Non
                               Change     (days)                         TOPIX                       (Nonlife)   (Life)   Brokers                                    (Nonlife)   (Life)    Brokers
                                                    per day 2yr Yld                Banks     Banks                                  Banks      Banks         Banks                                   Banks
  1   1994/11/07 1995/06/26        -1.16     231       -0.50     -2.66      -21%     -14%      -15%      -20%                -30%     -25%          7%           5%        1%                  -9%      -4%
  2   1995/08/21 1995/11/27        -0.57      98       -0.58     -0.66       3%       3%         -2%       0%                 4%       7%           0%           -5%      -3%                  1%       4%
  3   1996/07/15 1997/03/31        -1.00     259       -0.38     -1.51      -16%     -29%      -20%      -15%                -35%      -7%        -13%           -4%       1%                 -19%     10%
  4   1997/06/02 1997/11/24        -0.77     175       -0.44     -0.39      -16%     -20%      -12%      -19%                -21%     12%          -5%           3%       -3%                  -5%     28%
  5   1998/02/09 1998/08/31        -0.43     203       -0.21     -1.03      -15%     -48%      -13%      -16%                -19%      -5%        -33%           2%       -2%                  -5%     10%
  6   1999/01/04 1999/05/17        -0.47     133       -0.35     0.74       24%      60%         4%        7%                57%      18%          35%         -20%      -17%                 33%       -7%
  7   2000/07/03 2001/03/19        -0.53     259       -0.20     -0.35      -25%     -16%      -13%        5%                -31%     -22%          9%          13%       31%                  -6%      3%
  8   2006/06/05 2008/03/31        -0.88     665       -0.13     -0.89      -24%     -48%      -18%      -25%      -28%      -38%     -60%        -24%           6%       -1%        -4%      -14%     -36%
  9   2008/06/16 2013/06/24        -0.41    1,834      -0.02     -0.70      -22%     -25%        -9%     -42%      -57%      -44%     -25%         -3%          13%      -20%      -35%       -22%      -3%



        During interest rate hikes
                                                    Velocity             chg (%)                                                             rel to TOPIX
                              O/N - 2 Yr Duration
        From        To                               (bps)   US O/N -              Major    Regional                                 Non         Major Regional                                       Non
                               Change     (days)                         TOPIX                       (Nonlife)   (Life)   Brokers                               (Nonlife)        (Life)    Brokers
                                                    per day 2yr Yld                Banks     Banks                                  Banks       Banks     Banks                                      Banks
  1   1995/06/26 1995/08/21         0.62      56       1.11      0.64       15%      13%        10%       14%                 27%     15%           -2%          -5%      -1%                  11%      -1%
  2   1995/11/27 1996/07/15         1.09     231       0.47      1.18       12%       3%        11%       21%                  5%     15%           -9%          -1%       9%                  -8%      3%
  3   1997/03/31 1997/06/02         0.64      63       1.01      1.23       10%       9%         2%       13%                 -1%      8%           -1%          -7%       3%                 -11%      -1%
  4   1997/11/24 1998/02/09         0.52      77       0.68      -0.26        2%      9%         6%       18%                 12%      -2%          7%           4%       16%                  10%      -4%
  5   1998/08/31 1999/01/04         0.54     126       0.43      0.63        -4%      7%         -1%       2%                -26%      -6%         11%           3%        5%                 -22%      -2%
  6   1999/05/17 2000/07/03         0.46     413       0.11      -0.99      21%      -16%        -4%     -12%                 91%      0%         -38%          -25%     -34%                  70%     -22%
  7   2001/03/19 2006/06/05         0.85    1,904      0.04      1.05       33%      77%        84%       95%                 35%     52%          44%          51%       62%                   2%      19%
  8   2008/03/31 2008/06/16         0.53      77       0.69      1.90       16%      36%         9%       25%       31%       22%     21%          20%           -6%      10%       15%         7%      6%

Note: IR hikes and falls are defined as when the spread between 2yr JGB’s IR and overnight calls moved (up/down) by more than 40bps and the absolute performance and relative
performance vs. TOPIX are compared. Data for each sub-industry (Major bank index, regional banks (top 10 in market cap), non-life and lifers) based on total market cap for each sub-
industry




 Source: Thomson Reuters, Bloomberg, Morgan Stanley Research                                                                                                                                                  28
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Industry Coverage

Industry Coverage: Ban, Hideyasu
Company (Ticker)                            Rating (as of)     Price* (6/26/2013)
Insurance
Dai-ichi Life Insurance (8750.T)              O(2013/6/27)              ¥134,700
MS&AD Insurance Group Holdings                E(2013/6/27)                 ¥2,355
(8725.T)
NKSJ Holdings (8630.T)                        O(2013/6/27)                 ¥2,211
Sony Financial Holdings (8729.T)               E(2012/7/5)                 ¥1,493
T&D Holdings (8795.T)                         E(2013/6/27)                 ¥1,238
Tokio Marine Holdings (8766.T)               E (2013/3/21)                 ¥2,991
Other Financials
AEON Financial Service (8570.T)              E (2009/8/18)                 ¥2,555
Credit Saison (8253.T)                       E (2013/3/21)                 ¥2,290
Daiwa Securities Group (8601.T)               E (2013/2/2)                   ¥774
Nomura Holdings (8604.T)                     O (2013/3/21)                   ¥698
Orix (8591.T)                               O (2011/10/26)                 ¥1,180
Japan Exchange Group (8697.T)                 E(2013/1/29)                 ¥9,370
SBI Holdings (8473.T)                        U (2012/11/9)                 ¥1,014


JAPAN DISCOVERY UNIVERSE
Other Financials
Aiful (8515.T)                                          NR                   ¥803
Monex Group (8698.T)                                    NR                ¥32,050
Seven Bank (8410.OS)                                    NR                   ¥344
Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.




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Disclosures Section
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                                                      emphasizes the separation of operating performance of a company from its financing for a more complete view of how a company
                                                      generates earnings.

The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley MUFG Securities Co., Ltd. and its affiliates (collectively, "Morgan Stanley").
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receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Hideyasu Ban, Takaaki Nishino.
Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.
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Hideyasu Ban - Dai-ichi Life Insurance(common or preferred stock). Morgan Stanley policy prohibits research analysts, strategists and research associates from investing in securities in
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Holdings.
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NKSJ Holdings, Nomura Holdings, Orix, Resona Holdings, SBI Holdings, Seven Bank, Shinsei Bank, Sony Financial Holdings, Sumitomo Mitsui FG, Sumitomo Mitsui Trust Holdings, T&D
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Exchange Group, Mizuho Financial Group, Monex Group, MS&AD Insurance Group Holdings, NKSJ Holdings, Nomura Holdings, Orix, Resona Holdings, SBI Holdings, Shinsei Bank, Sony
Financial Holdings, Sumitomo Mitsui FG, Sumitomo Mitsui Trust Holdings, T&D Holdings, Tokio Marine Holdings.                                                                                   30
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Disclosures Section
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                                         Coverage Universe                  Investment Banking Clients (IBC)

                                                             % of                              % of        % of Rating
 Stock Rating Category                     Count             Total          Count         Total IBC          Category

 Overweight/Buy                            1011              36%             390              38%               39%

 Equal-weight/Hold                         1250              44%             487              48%               39%
 Not-Rated/Hold                             104              4%                25               2%              24%
 Underweight/Sell                           469              17%             117              11%               25%
 Total                                    2,834                             1019

 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's
 existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12
 months.



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 Disclosure Section (cont.)
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Disclosure Section (cont.)
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Disclosure Section (cont.)
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                                                                                           MORGAN STANLEY MUFG RESEARCH
                                                                                                                June 27, 2013




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Description: Japan Financials Strategy: A New Phase